Owning a home in Canada has never been more of a challenge for up-and-coming home buyers who have recently entered the real estate market. For those 20-something first-time buyers, the market is in a state of paradoxical change, where rent is rapidly escalating, while housing prices have been decreasing over the last several months.

The Millennial and Gen Z Pipedream of
The Millennial and Gen Z Pipedream of Owning a Home in Canada Pixabay

Yet, as home prices have been falling, shouldn't it be easier for younger buyers to purchase their first home?

The answer is a bit of a mixed bag, which has in due time led to some property and real estate experts suggesting that younger potential buyers are unable to cope with the soaring cost of living and back-to-back interest rate hikes.

In June of this year, inflation for basic consumables and goods rose 8.5% compared to the same period last year. The record-shattering movement of inflation has been a shock to the system for many young Canadians who are unable to save for bigger long-term goals, one such being able to save enough money to buy a house.

Navigating the challenging economic conditions, against the backdrop of a looming recession has instilled a high level of uncertainty for many young professional Canadians with the pipedream of one day owning a house.

To get more insight on the topic, we reached out to Managing Director at Buttonwood Property Management and Real Estate Broker, Sabine Ghali to get her opinion on what many millennials and Gen Z buyers can expect in the near future.

The Fastest Growing Population is Living Paycheck to Paycheck

As strange as it may seem, Canada's fastest growing population, those between the ages of 25 and 40, who are also classified as millennials are living paycheck to paycheck as the cost of living takes a toll on their financial well-being.

In the most recent Canadian census, millennials made up one-fifth of Canada's population, accounting for more than 7.9 million Canadian residents. The sharp rise is due to a higher rate of immigration and setting in Canada among millennials compared to older population groups.

Major metropolitans such as Toronto have witnessed substantial growth in legal immigrants now residing in the city. Reasons for this are plenty, but for the most part, the city offers new immigrants a diverse environment and job opportunities. Currently half of the people living within the Greater Toronto Area were born outside of the country.

Despite the impact of the COVID-19 pandemic, seeing ongoing border closures, and temporary visa freezes, millennial immigrants were among the highest compared to their older and younger counterparts.

The millions of millennials who have settled in Canada, or who have resided here for most of their lives are now struggling to cope as the cost of basic consumables, services, and property prices have been escalating since the start of the year.

"The biggest challenge we currently see among young professionals is being able to afford housing in major cities. In the Greater Toronto Area, rent has increased by 5.9% since the first quarter of the year. On average, Canadians are now paying roughly 9% more for properties in most parts of the country," says Ghali.

Ghali, alongside residential property management group Buttonwood Properties Management, has built a long-standing relationship in delivering service and has in time established a loyal following among aspiring property buyers. Buttonwood has been in business for 11 years and has to date received zero negative reviews since its inception.

Regardless of how careful young professionals work with their money, or budget properly, their monthly income is barely covering their expenses.

Earlier estimates in the year found that transportation costs have increased by 5.6% compared to June 2020. In some cities such as Ottawa, public transportation will now cost individuals between $3 and $125.50 per month after a municipal draft budget from earlier this year suggested increasing transit fares by 2.5 cents.

Utilities were also not left untouched by higher consumer inflation rates, as electricity rates increased by 2.6% in April this year.

"The staggering percentages at which many things are increasing are leading to greater problems in the long term for younger professionals who are saving towards buying a house or apartment in the coming years," Ghali mentioned. "In our line of work, we care about the long-term relationships we build with clients more than anything else. The client-first mindset has been our secret to success since inception, so it's easier for us to relate to clients who are struggling under current conditions."

It's become impossible to balance the books, even after employers projected to raise basic employee wages and salaries by 2.7%. There's no real estimate of what the coming months will hold for many Canadians, even as many are reaching deeper into their savings to help alleviate the burdens of high costs.

Interest Rates Are The Main Cause Of Concern For Gen Zs

Worrisome interest rates are also among the hurdles that stand between many young Canadians and home ownership.

In mid-July, the Central Bank of Canada raised its policy rate by a shattering 100 basis points, hiking rates from 1.5% to 2.5%. This was one of the largest hikes in more than 20 years, Reuters reported.

The rate hikes are part of the central banks' arsenal to combat rampant running inflation, which has made it increasingly difficult for average Canadians to afford basic necessities.

The back-to-back rate hikes are now making it more expensive for many people, especially those in lower-wage households to afford a home loan or financial support.

A report by Mustel Group and Sotheby's International Realty Canada found that 51% of Gen Z professionals cite landing a high-paying full-time job as their best way to put enough money away to buy a home in the next five years. In the same report, around 42% and 41%, of Gen Z respondents, respectively, cited reducing personal spending and getting a second job as their only other option of ever having the chance to enter the real estate market.

"Interest rates will only be climbing further, as the Fed's are building up steam to cool down inflation. As a result, we can expect to see fewer younger buyers in the real estate market who will have the opportunity to buy a home as opposed to their older generational counterparts."

Even if Gen Zs have enough free-flowing cash or hefty savings, it's not to say that available inventory prices will fall within their budget. While home prices have come down by 2% in June compared to the same time last year, the average home price is still above $660,000, a price only 26% of Gen Zs say they'll be able to afford in five years according to the Mustel Group report.

"The housing market has come down slightly from its peak in 2021, but now the rising mortgage rates brought on by the Central Bank are still causing massive headaches for many buyers. If challenges persist, it will take buyers longer, and cost them more, whether they have the sufficient funds or take out a loan," Ghali mentioned in a final comment.

The Bottom Line

There's no way of estimating where prices may end up in the next few months as we start to approach the tail end of the year. In the last six months, Canadians have experienced a shockwave of new financial challenges, mostly impacting younger Canadians who have recently stepped into the workforce.

As mortgage rates and the cost of living keep going up, the average Canadian might find it increasingly difficult to purchase a home in the near future. Navigating these challenging economic conditions has not been an easy caveat, and younger Canadians should start planning sooner than later to be able to one day live out their pipedream of becoming a homeowner.